FHLB Council President: Liquidity Letter Written at Request of CU Members

John von Seggern, president/CEO of the Council of Federal Home Loan Banks, told Credit Union Times on Tuesday that a Jan. 31 letter signed by all 12 FHLB presidents urging the NCUA to include them as an option in the final emergency liquidity rule was prompted by credit unions.

“They are encouraging us to make sure we are active in this process,” von Seggern said of the 900-some credit unions that are FHLB members. “The NCUA is going through the rules process and we want to make them understand we will, have and can provide the liquidity our members need.”

The NCUA said last July when it introduced the proposed rule that while the FHLBs are a good source of regular liquidity, they aren’t appropriate emergency liquidity providers.

“FHLB is certainly one way a credit union can diversify to guarantee a smooth flow of funding for ordinary operations,” the NCUA said in its board memorandum. “The board recognizes, however, that the FHLBs are private institutions which are not obligated, and may not be able, to meet emergency liquidity demands in the same way the Discount Window and CLF are statutorily designed to do.”

Von Seggern said he strongly disagrees.

“We access the markets, including global markets, and increased lending by $400 billion in 2008,” he said. “We did not have a liquidity problem. The entire market was tough, granted, but you can’t go from lending $700 billion to over $1 trillion with liquidity problems. The markets wouldn’t allow that.”

Credit unions, particularly large ones, said in 2008 that the FHLBs were a valuable liquidity resource for funding mortgage lending, citing favorable rates and professional service.

NCUA Public Affairs Specialist John Fairbanks said Friday the NCUA is reviewing all comments regarding the proposed rule, but would not say if the regulator was considering adding FHLBs to the final rule.

Von Seggern said his organization has met with the NCUA to discuss the rule. When asked if he thinks the regulator is open to modifying the rule to include FHLBs, he said the two sides are attempting to work through the issues.

“We just want to make sure there is a good understanding, because it appears there is not a full understanding between us and them,” he said of the NCUA. “By sending a letter with all 12 presidents signing, I think it showed them that we are there, we want to work with our members and their regulator and make sure they can get access to liquidity when they need it.”

He added that the FHLB council is not opposed to the NCUA’s Central Liquidity Facility, but rather, just wants to be included in the rule as an option.